Category Archives: oil industry

EAVCA: East Africa Private Equity Snapshot

Ahead of the 3rd Annual Private Equity in East Africa Conference, (taking place on June 15 in Nairobi) the East Africa Private Equity & Venture Capital Association (EAVCA) and KPMG East Africa released their second private equity survey showing increased funding and activity, and with a lot more opportunity for deals to be done.

They estimated that of the $4.8 trillion raised between by P/E funds globally between 2007 and 2016, about $28 billion was raised by Africa-focused funds and $2.7 (including $1.1 billion in 2015-2016) had been earmarked for investment activity in East Africa.

This private equity had funded over 115 deals in the period that were included in the survey. Out of these  the 115 deals, 23 were agri-business, 20 were financial services, 13 manufacturing, and 12 FMGC representing 59% of deal volume. The average deal size had also grown to the $10-15 million range, while in the initial survey it was below $5 million.

East Africa Private Equity Survey

Of the 115 deals, Kenya had 72 deals (63% of the total), Tanzania 19, Ethiopia 8, Uganda 12, and Rwanda at 4. Some of the large deals in the survey, by country, include:

Rwanda: Cimerwa – PPC ($69M), Cogebanque ($41M), BPR-Atlas Mara ($20M), Pfunda Tea ($20M)
Uganda: topped by oil deals CNOOC and Total SA (both $1,467 million), Tullow $1,350M, Total $900M, CSquared-Mitsui $100M, Sadolin-Kansai $88M
Ethiopia: National Tobacco – Japan ($510M), Meta Abo-Johnnie Walker ($255M), Dashen-Duet ($90M), Bedele-Heineken ($85M) and Harar-Heineken ($78M), Tullow-Marathon ($50M)
Tanzania: Africa Barrick Gold ($4,781 million), Tanzania – Pavilion ($1,250M), Vodacom ($243M), Export Trading Co ($210M), Millicom-SREI ($86M), Zanzibar Telecom-Millicom ($74M)
Kenya: Safaricom-Vodacom ($2,600 million), Africa Oil-Maersk ($845M), I&M-City Trust ($335M), Ardan-Africa Oil ($329M), Kenya Breweries-EABL $224M, UAP-Old Mutual ($155M), ARM Cement-CDC ($140M), Wananchi ($130M), CMC-AlFuttaim ($127M), Essar ($120M)

P/E operations: There are about 72 funds operating/focused in East Africa (up from 36 in the first survey) with over 300 employees. 89% of the survey respondents have a local presence in East Africa.

Some of the fund companies that responded to the survey include Acumen, Abraaj, AfricInvest, AHL, Ascent, , Catalyst, Centum, CrossBoundary, Grofin, Emerging Capital Partners, Kuramo, Metier, Mkoba, NorFund, Novastar, Phatisa, Pearl Proparco, Swedfund, and TBL Mirror

Returns:  Of  the deals done, survey responders had an average IRR target was 22% while the actual IRR achieved was 19%.  There were 34 exits between 2007 and 2016, with increased recent activity; 2014 (had 7), 2015 (7) and 2016 (6). The preferred mode of exit is sale to a strategic investors (preferred by 78% while this mode accounts for 38% of exits) followed by share buy backs (32%), then sales to another P/E (21%).

Many of the funds in the region are still in early stages, and 54% have made nil returns to their investors. They surveyors estimate there are more opportunities for Africa private equity in health, education, retail, and manufacturing sectors.

Guide to Togo and Benin

A guest post from a media gathering trip to these two French-speaking countries that lie between Ghana and Nigeria.

Getting There: Took Ethiopian Airlines – Nairobi – Addis – Lome, then by car to Cotonou and then back to Addis and Nairobi. Ethiopian flies to both countries. Initially, I had set my trip to go into and out of Lome, but changed it mid trip. The expense for the change was significant, but I assume it would have been minimal if I had done it that way up front. The round trip cost was $750 plus $350 for the change.

On arrival: Arriving in Lome was easy, but the visa on arrival (American passport) was a bit of a pain of a process and wait. There was a list of the cost for every country in the world, except America and of course mine was much more than any listed. It was 10-20,000 CFA for most countries, while the US one was 27,000. I paid in USD cash, but they had to exchange it into CFA. It’s better to pay in CFA I’m sure.

Getting around: I had private transport the whole time. In both Togo and Benin, the massive majority of people move via private motorcycle. There are many boda for hire as well. A few matatu type transportation as well and the rare taxi car for hire. The large buses were for transport to other towns and the small minivan was not seen on the highways between towns. There did not seem to be much foot traffic like you have in Nairobi. Cars and bikes were not fighting for space and everything seemed to flow smoothly.

Benin: Walking around my hotel was safe. It is next to the airport and it seemed that many of the government offices and embassy’s were around, so the security was higher. Many of my local friends have been pick pocketed on the streets, but violence doesn’t seem to be as common as in Nairobi.

Togo seemed very safe overall. The crowds were smaller. A slower pace of life.

Staying in touch: It was very easy to get a local SIM card, much like in Kenya. Costs were very comparable. I forget the network in Togo, but I’m using MTN in Benin. I don’t recall if I could use Safaricom, I didn’t even try. I have not tried calling international on either network. Wi-Fi seems to be common, but the speeds vary a lot and the network is down often. I suspect it’s a problem with the ISP more than the local network. In Togo, my colleague’s wife happens to work at the office of the mobile company. I provided my passport and she gave me a SIM card. In Benin, a friend purchased the card for me, but I suspect it only required a copy of ID to obtain.
Where to Stay: I think the median cost is $60. I started at a place that cost $25 without breakfast that was a rat hole. I moved to a western level of accommodation for $80 with breakfast. All the hotels I stayed in, no matter how nice, always had AC & Wi-Fi.

Electricity was surprisingly good. I honestly don’t recall a single power cut, but I’m sure they happened. Most of the hostels had a generator.

Eating Out: Foo Foo is a staple somewhat similar to ugali. It’s wet and slimy and has more flavour to it, but fermented, like Ethiopian injera. Some forms have a lot more flavour than others with cassava being a common ingredient. No clue on the beer, but easy to get everywhere, as is French wine, even upcountry.

No clue with bar conversation is – it’s also all in French. French is a must. I had a variety of hosts with me the whole time. The only English I found was the little spoken by the staff in the hotel. I very much doubt there is a local English paper.

Shopping: in Benin, there is a very small market in front of a very nice supermarket next to the airport. It seems the majority of gifts are cloth based. I did see some very unique, artistic metal work. Of course, there is also the standard wooden animals. I was told there is another market, but I was not able to attend.

In Togo: I was taken to a small market with maybe a dozen stalls with a wide variety of items. For the most part, pretty similar to what you find in Kenya. There was one guy selling silver jewelry, like what you find in Ethiopia.

Sightseeing: In Togo,  there is the main museum next to their national monument, but I didn’t have time to visit. The beach is incredible, but only locals use it. There doesn’t seem to be any structured area for tourism.

In Benin, the interior mountains are incredible sites to see, massive slabs of granite, there is a very famous sighting of Mary in Dassa. A very large church has been built there and every year massive numbers of West African Catholics come for a special service and ceremony. The church is only used for this event. I’m told that the town comes to a standstill. The church could probably hold over 10,000 people and I was told the grounds outside are completely covered in standing room only. I imagine over 25,000 people attend.

Card usage is extremely rare, even for nice restaurants. Food costs vary from $1 (roadside) to $20 (nicest restaurant) for a meal. CFA is used in both Togo & Benin everywhere.  I used an ATM everywhere. They were found all over town. I used CFA for everything.

Odd Points: Partial buildings: West Africa’s way of saving money is to build their homes and churches over many years as money comes. Sadly, I have seen in rural Burkina Faso many, many ruined homes never finished. What a waste. But, from what I saw in Togo and Benin, most everything is eventually finished.

My hosts were rarely forthcoming with information and did not seem like problem solvers. I was constantly having to suggest solutions and pointing out gaps. I am not sure if I was missing culture cues or perhaps a lot was happening in the language that I was not picking up on. I appreciated that the roads seemed significantly safer.
Biggest surprise:  The road structure. There are beautiful, nice main roads, and then dirt. Nothing in between. This seemed mostly true in both countries. Many roads in both countries were not paved but made from interlacing bricks. Black market fuel seems to be very big in both countries. It’s not as obvious in Togo, but it’s done very openly all over Cotonou, and it’s half the price compared to the pump.

Tullow to truck Oil from Turkana to Mombasa

Tullow Oil has an advert in the newspapers today seeking suppliers to help it transport oil from  Lokichar, Turkana to Mombasa. There are two requests:

  • For registered truck companies in Kenya, that have new vehicles, and experience transporting hazardous material.
  • The other is for a lease of 100 pressurized insulated containers of 25,000 liters each. (Presumably these T11 standard containers can also be transported by railway).

There is a bit of regional and domestic politics here. While Uganda seems to have opted to refine its oil and ship it out via a pipeline in Tanzania, Kenya wants to show that it can deliver on that in the short-term.

Trucks on a highway (via AfricaKnows.com)

Trucks on a highway (via AfricaKnows.com)

Also the Jubilee government is checking off all its pre-election promises and while the one to prioritise the construction of an oil pipeline from South Sudan and a new oil refinery at the coast may not materialize, expect by the August 2017 elections to have a barrel of Kenyan oil shipped out from Mombasa, regardless of the means of transport or the cost of production.

Once oil is trucked to the coast, the long-term picture could see a lowering of the costs and perhaps  re-engagement by other countries in the region on the suitability of shipping oil through a pipeline in Kenya.

 

Mining Moment: Kenya Mining Forum

Excerpts

Kenya’s Mining Cabinet Secretary, Dan Kazungu; Kenya has a $30 million budget for an aerial mineral survey, and will also start a mineral data bank & audit unit

  • Kenya has gold coal iron copper titanium niobium flouspar limestone CO2 (carbacid in Kiambu) gypsum gems.
  • In April cabinet approved a mining & mineral policy, and in May Kenya repealed the 1940 mining act and replaced it with a new progressive law.  The mining act 2016 aligns itself to 3 documents – the 2010 constitution, Kenya vision 2030 and AU Africa mining vision
  •  Kenya’s 2016 mining act aligns itself with the 2010 constitution, Vision2030 and AU mining guidelines
  • Mining was an environment ministry department till Jubilee made @madinikenya an economic transformation pillar
  • The new application laws are simple, clear, predictable and transparent for a level [laying field. The engaged the industry. There will be no more single person decisions. Committees will give feedback to mining requests in 3 months with reasons, and if applications are for more than $500  million it has to go through parliament
  • Intra-Africa trade can also including mineral traded legally – make Kenya a trading hub (not a smuggling one)

Patrick Obath: How can Kenyans get more mining information Right now it’s only in the gazette which hardly anyone reads.

Central field at Base Titanium, Kwale, Kenya.

Central field at Base Titanium, Kwale, Kenya.

Martin Ayisi: Kenya law now recognizes artisanal mining ..can have impact like Mali where they produce 23 tons of gold worth $742M in 2015

  • Kenya government can now award some mineral rights by tender, as opposed to first come first served 
  • Prospecting consent is guaranteed by law .. the challenge is when to apply for formal permission
  • Mining investors hate when governments change rules midstream
  • Kenya is creating a national mining corporation but there have not been success stories in Africa. Nevertheless they will take on lessons from Ghana and Zambia and learn from those

Dominic Rebelo: Miners are concerned that at the end of licenses, all assets go to government (immovable ones go to national government, and movable ones to the county)..some will scale back operations and sell off (strip) assets to preempt this before their licenses end

  • Mining companies and mining support companies will be licensed and have comprehensive disclosure & progress report requirements. This is to lock out briefcase ones,  or people who sit on licenses for speculation
  • Large mining companies `are to list 20% in 3 years, but stock exchanges require 5 years profit – there may be a need to create a special stock exchange for mining companies. Also the govt gets 11% for free (10% + there’s 1% stamp duty to be paid)
  • If an mining investor finds a strategic mineral, they have to stop operations indefinitely & declare the find. There needs t be certainty of what is defined as a strategic mineral, and a defined process of getting a mineral on or off that list.

Of Games and Theories: Fuel Prices…

You have no idea how my pocket flinched at the news of increase in fuel prices. (see the notice by ERC here).  I literally frowned as I imagined queuing at the chaotic bus stands to avoid the rumbling belly of my petite car. Why do these fuel prices keep going up and in the same rhythm come tumbling down? Why is it that sometimes everyone seems to be hurriedly dashing to fuel stations and in other times station owners are desperately investing in ‘happy’ franchises to attract more customers? Even the non-car owner, the one using public transport is directly affected by the fluctuating fares that usually don’t come down after significant upsurges. What exactly is the game? Or is there a plausible theory?

So I brushed through a couple of articles on the volatility of oil prices and whoa! it took me back to the fourth of nine rows of our 20xx macroeconomics class. The demand, supply, and price elasticity curves, that gave me a really hard time in year One of campus, suddenly begun to make sense. (looking forward to the day I will say the same for parallelograms!)

The theory. Positive shocks would be as a result of increased production from OPEC (Organization of the Petroleum Exporting Countries) as well as non-export oil-producing countries. The increased supply in oil would automatically lower its prices. However, if any of the quotas of these 13 countries (Nigeria, Algeria, Libya, Angola – just to proudly mention the current African member states) are curtailed in the sense of production or political issues, then prices automatically go up due to increased demand for oil. Negative shocks would result from significant decline in demand. Case in point – China. When such a large economy experiences severe downturn, the whole world cries because this very large customer is unable to buy in its unusually large quantities.

The games. In a monopoly (one seller/producer for a product), no competition exists and so the company can demand any price it from its customers for this precious commodity. For duopolies, the two companies have to work in a way that they balance their margins and market share else they can easily find themselves at the mercy of the consumer. The real games lie with oligopolies such as the OPEC cartel because the real power (pun intended) lies at their feet. And the more power an OPEC member state wields, the greater its political influence. Some theorists argue, though, that cartels help regulate the volatility present in every commodity market. Well I don’t know about that, all I remember is that some of us really suffered from the cartels that happened at the University library.

PS: Did you know that chewing gum, crayons, lipstick, sports equipment, and wrinkle-resistant clothes are made from petroleum (by) products?

Guest post by Tesha Mongi (visit her blog